Facebook to pay $19 billion for WhatsApp

SAN FRANCISCO — Facebook, the world’s largest social network, agreed to acquire mobile-messaging startup WhatsApp for as much as $19 billion in cash and stock, seeking to expand its reach among users on mobile devices.

The purchase would be the biggest Internet deal since Time Warner’s $124 billion merger with AOL in 2001, according to data compiled by Bloomberg. The accord includes $12 billion in stock, $4 billion in cash and $3 billion in restricted shares, Facebook said Wednesday in a statement. WhatsApp has more than 450 million members, with 1 million users being added daily, Facebook said.

Additional Photos

This Wednesday, Feb. 19, 2014 photo shows the WhatsApp and Facebook app icons on an iPhone in New York. On Wednesday the world’s biggest social networking company, Facebook, announced it is buying mobile messaging service WhatsApp for up to $19 billion in cash and stock. The Associated Press

Facebook, which acquired photo-sharing service Instagram for about $700 million in 2012, is counting on applications beyond its main social network, such as messaging and news, to court more users on smartphones and tablets. WhatsApp competes with Snapchat, which rebuffed a $3 billion offer from Facebook last year, as well as services from Twitter and Kik Interactive.

“They seem to have made a pretty strong statement with this acquisition — that they are willing to broaden their portfolio of apps and not just put all of their eggs in one basket,” said Debra Aho Williamson, an analyst at EMarketer. “Facebook has come to the realization that it needs a portfolio of apps to reach people with different use cases, different demographics, or different ways of communicating.”

The deal is the largest ever for Menlo Park, Calif.-based Facebook, and prices WhatsApp at more than half of Twitter’s market value. Ahead of the announcement, shares of Facebook rose 1.1 percent to $68.06 at the close of regular trading.

“Facebook is clearly taking out one of its main competitors,” Paul Sweeney, a Bloomberg Industries analyst, said in an email. “They are buying 450 million loyal users and an extraordinary growth story, but at a staggering cost.”

Mountain View, Calif.-based WhatsApp, which is popular in Europe, lets users send messages through its service on mobile devices based on different operating systems including Apple’s iOS, Google’s Android, Microsoft’s Windows Phone and BlackBerry’s software.

Unlike traditional text messages, which consumers pay for through their mobile-phone plans, WhatsApp is free for the first year, and then costs 99 cents a year after that. It also competes with Tencent Holdings’ WeChat in China, KakaoTalk in Korea and Line in Japan, as well as Facebook’s own application, Facebook Messenger.

“They just took out their primary threat and they recognize that overnight it makes them the leader in the mobile messaging space,” said Jim Patterson, CEO of San Francisco- based Cotap, a messaging service for businesses. “It was clearly the first mobile app other than Facebook that was going to get to 1 billion users.”

Jan Koum, WhatsApp’s CEO, co-founded the company with Brian Acton in 2009 after almost a decade as an engineer at Yahoo. Venture capital firm Sequoia Capital invested $8 million in WhatsApp in 2011.

While Facebook has touted its progress adding more advertising revenue on mobile devices, Koum has been strict about keeping ads out of WhatsApp’s messaging service.

Koum said in a statement Wednesday on the company’s website that WhatsApp will remain autonomous and operate independently.

“There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product,” he said.

Zuckerberg first reached out to Koum in the spring of 2012, when the two met for coffee at a German bakery in Los Altos, Calif., and ended up talking for more than two hours, according to a person with knowledge of the matter. They have since met frequently, going to dinner and on hikes, said the person, who asked not to be named because the process isn’t being discussed publicly.

Koum went to Zuckerberg’s house in Palo Alto for dinner on Feb. 9, and the conversation became more serious. The two talked about how they could work together more closely on Zuckerberg’s Internet.org initiative for connecting the world on mobile devices, and the conversation evolved into acquisition talks in the next 10 days, with Zuckerberg suggesting Koum join Facebook’s board. On Valentine’s Day, Koum came by Zuckerberg’s house with chocolate-covered strawberries that the two shared as they hammered out pricing points, the person said.

Facebook was advised by Allen & Co. and Weil, Gotshal & Manges, and WhatsApp was advised by Morgan Stanley and Fenwick & West.

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